Goldman Sachs' Response to March 25, 2012 The New York Times Article "Anger at Goldman Still Simmers"

The New York Times ran a story on the failure in 2008 of the hedge fund Copper River‪, which used Goldman Sachs as its prime broker. The story relies on statements made by Marc Cohodes, a former senior executive at Copper River, in a November 2011 deposition in the Overstock.com short-selling case.

‪The questions posed to us by the Times are presented in bold text below, followed by the responses which we provided in advance of the story’s publication.

CONTEXT:

The events referenced resulted from unique circumstances during the financial crisis in September 2008, a time of extreme stress in global financial markets. Copper River was a hedge fund with a short-biased trading approach. Its difficulties were triggered largely by a sharp rise in prices of several stocks in which it held large short positions following new regulations, a ban on short sales of the stocks of financial institutions, and other significant market developments. Copper River’s short positions moved dramatically against it, causing its accounts to incur losses of over half a billion dollars and approximately one third of their value.

‪Mr. Cohodes said he believed that, without his knowledge, Goldman had not borrowed the shares he had shorted as is required under securities laws. Had Goldman in fact located and borrowed the shares that Copper River had shorted? Or had the firm failed to do so leaving Copper River naked in its short positions?

‪Mr. Cohodes is wrong. We met our obligations under applicable law. Mr. Cohodes himself described this theory as “just speculation on my part” in his November 2011 deposition. One of his former Copper River partners, Richard Sauer, described the same “speculation” in his 2010 book, “Selling America Short.”

‪Why did Goldman require Copper River to close out its short positions in Sept. 2008 even though the fund was in compliance with its Fed margin requirement? ‪ Significant losses and a drop in position value caused the Copper River accounts to incur risk calls in September 2008, which it did not adequately address. These losses created risks for Copper River, Goldman Sachs and the broader market. As a result, we declared an event of default which entitled us as prime broker to require liquidation of the account. Mr. Cohodes acknowledged in his November 2011 deposition that Copper River faced potentially unlimited losses if the prices of stocks held short by his fund continued to rise, and that Goldman Sachs could have been left responsible for those losses.

‪Mr. Cohodes also contends that Goldman bought in Copper River's short positions in a reckless fashion driving up the prices of the stocks and making the purchases far more costly. Did the firm do this? If so, why? ‪ No. We conducted the liquidation in a manner designed to limit, to the extent possible in an extremely volatile market, losses in Copper River’s accounts.

‪Mr. Cohodes said that when Copper River tried to transfer its positions to another bank, Goldman would not allow the transfer. Later, Copper River was arranging for another fund, Farallon Capital, to take over its positions and stop the buy-ins. But a trader on Goldman's prop trading desk warned a Farallon executive not to take over Copper River's positions because, the trader said, Copper River would be out of business soon. This indicates that prop trading knew of Copper River's problems and may have been frontrunning its trades, increasing the costs of its buy-ins, Mr. Cohodes said. Please comment on these allegations.

‪We looked into these frontrunning allegations, and they are not true. Mr. Cohodes himself acknowledged in his November 2011 deposition that he had no way of knowing whether they were true. ‪‪The deposition makes clear that Mr. Cohodes believes Goldman contributed greatly to Copper River's losses and its closing. He characterizes Goldman in the deposition as a "racketeering entity that does whatever they can to make a dime without conscience, thought, foresight or care about ramifications." What is Goldman's response? ‪ Mr. Cohodes stated in his November 2011 testimony that, prior to the losses his fund experienced in the Fall of 2008, he had been a satisfied customer who received excellent service from Goldman Sachs for over 20 years. His opinion only changed when market conditions turned against the funds’ short bias and the funds suffered dramatic losses. ‪